Taking Aim at Choice of Law & Choice of Forum Provisions in Employment Contracts

California Labor Code § 925 went into effect on January 1, 2017, limiting an employer’s ability to require employees who “primarily reside and work in California” to enter into employment agreements that include out-of-state choice of law and/or forum selection clause. The section effects employment contracts entered into on or after January 1, 2017. This section, however, will not apply if the employee is represented by counsel in negotiating the terms of the employment contract.

Section 925 may have an immediate impact on employment contracts with covenants not to compete (“non-compete clauses”). California Business & Professions Code § 16600 generally prohibits such clauses in employment contracts, favoring a public policy of a worker’s right to pursue any lawful trade or profession. In the past, employers have utilized choice of law and/or forum clauses with selection of states that allow non-compete clauses to protect against competition by ex-employees based in California.

Labor Code section 925 will frustrate those efforts by employers to enforce choice of law and/or forum selection clauses by providing employees with the ability to preemptively challenge those clauses as unlawful. There is some debate as to the enforceability of section 925 on a court in a different state, but Labor Code section 925 provides employees another tool to undermine an employer’s attempt to prevent competition by ex-employees.